McKinsey Partner Charged with Insider Trading​


By Jake Rickman​

What do you need to know this week?

A partner at the consulting firm McKinsey was charged by US prosecutors for insider dealing. The allegations state that he used sensitive insider information to manipulate the market.

Puneet Dikshit, who has since been fired, was a senior leader for McKinsey’s North American unsecured lending practice and was advising Goldman Sachs, a global investment bank, on their acquisition of GreenSky Inc, a fintech company.

Because Mr Dikshit was advising Goldman Sachs, he knew that the bank was going to buy GreenSky before the rest of the public did. Predicting that the announcement of the acquisition would raise the cost of GreenSky’s shares, he purchased “call options”, which is a contract that gave Dikshit the option to purchase the company’s shares at a certain price in the future. He then sold these options the day the deal was announced for $450,000.

If convicted, he could face more than 20 years in prison under US law.

Why is this important for your interviews?

You probably know about the importance of a lawyer’s duty to keep a client’s information confidential. Insider information is slightly different but no less important. UK law defines it as non-public knowledge about a company that, if it were made public, would have a big impact on the price of the company’s shares.

Lawyers advising publicly-traded companies on matters like takeovers and acquisitions, tax, and corporate governance will inevitably gain access to insider information.

Knowing what inside information is and what you can and cannot do with it is important for anyone working in the City, especially lawyers. If ever asked about the importance of professional ethics, this is a great example of what not to do.

Additionally, if you are interested in white-collar crime or regulatory compliance, the facts of this case will be a good example of a relevant commercial topic.

How is this topic relevant to law firms?
Public markets like the stock market operate on the fundamental principle that everyone has access to the same information. There are laws against the use of inside information because it would be unfair to permit those with more information than others to trade as if they did not.

Therefore, those that have access to inside information cannot manipulate the market with this information. This includes directors of companies, as well as their professional advisers including consultants, bankers, accountants, and lawyers.

Without adequate measures to prevent insider dealing, companies open themselves up to huge financial and reputational liabilities (look at McKinsey). Solicitors practising in regulation and compliance areas are the ones that help ensure its client has in place adequate policies, such as bans on trading certain kinds of securities.

Additionally, those charged with securities fraud, like Mr Dikshit, will want to ensure they are properly defended by instructing a law firm with a recognised white-collar defence practice.